The Acquisition Process - Structuring the Deal, Negotiating the Letter of Intent & Conducting Due Diligence

Sep 16, 2026

Guide to acquisition structuring, from early deal framing through transaction completion. Covers the negotiation workflow, including drafting and using a letter of intent (binding or non-binding), and conducting due diligence via legal, financial, and business investigations. Explains how definitive agreements extend the core terms, addresses regulatory or third-party approvals, and outlines closing and post-closing steps. Compares asset versus share purchase risks, liability allocation, implementation complexity, and tax implications, including treatment of losses.

LanguageEnglish

CategoryGeneral

FormatPDF

Pages3

Reading Time1 min

AccessFree to download

Initial Negotiations: Asset vs. Share Purchase Transaction

Share Purchase Transaction

Asset Purchase Transaction

Letter of Intent

Purpose and Binding vs. Non-Binding Terms

Due Diligence

Definitive Agreement

Regulatory & Third Party Issues

Financing

Closing

Post-Closing

THE ACQUISITION PROCESS: STRUCTURING THE DEAL, NEGOTIATING THE LETTER OF INTENT & CONDUCTING DUE DILIGENCE | Letter of Intent
A written agreement (binding or non-binding) establishing or confirming the fundamental terms of the transaction is drafted and accepted (before the expense and time of negotiating and drafting a definitive agreement is incurred) | |
Due Diligence
Investigation and searches relating to the business being acquired or invested in (including legal, financial and business due diligence). This process continues throughout the entire transaction | | --- | --- | --- | | | | | Definitive Agreement Sets out the full terms and conditions upon which the transaction will be completed (ie. builds upon the fundamental terms of the letter of intent) Regulatory & Third Party Issues Certain transactions may require third party consent or governmental approval Closing Documents are signed, purchase price is paid, etc. Post-Closing Document distribution & clean-up, post-acquisition integration, earn-outs, adjustments, etc. Financing Financing may come from a variety of sources (including from banks, private investors, venture capitalists, the capital reserves of the purchaser, or the seller may finance the acquisition) Initial Negotiations: Asset vs. Share Purchase Transaction The initial question in any acquisition is whether the transaction should be structured as an asset purchase or share purchase. The answer depends upon a number of factors, including: timing, risk allocation (i.e. the liabilities, claims and encumbrances associated with the business), ease of implementation and tax consideration. In a share purchase transaction, the purchaser acquires the corporation itself, with all of the underlying assets and liabilities. A share purchase is generally faster to complete and less complex than an asset acquisition – and it avoids many of the practical problems associated with a transfer of particular assets (such as the common requirement to obtain consent from third parties-although this may be required in certain cases -or to have the assets re-titled in the purchaser’s name) . From a vendor’s perspective, a share transaction may be more tax advantageous than an asset purchase. This is because no GST or PSTis payable on the sale of shares: tax liability is limited solely to taxes on any applicable capital gains (which in itself receives favourable tax treatment in comparison to tax on income) . Moreover, taxes paid on capital gains may be minimized further if the business qualifies for a capital gains exemption as a Small Business Corporation. On the other hand, the vendor in a share transaction is unable to retain any existing losses (if any) in the corporation in order to off-set against future income. 1 In an asset purchase transaction, the purchaser selects which assets of the business (and accompanying liabilities) it wishes to purchase: it also gets to decide which assets and liabilities it wishes to exclude. Liabilities unassumed by the purchaser, particularly unknown liabilities, will remain the responsibility of the vendor. An asset purchase is often the more favourable structure for a purchaser or if the vendor is selling one division of a corporation while maintaining another. A sale of assets will generally be less favourable to the vendor from a tax perspective. This is because the sale is taxed at two levels: to the corporation when it sells its assets; and, to the shareholder (i.e. vendor) when the profits are distributed by the corporation. In an asset purchase, however, the vendor retains the ability to use existing tax losses in the corporation.2 Letter of Intent In many transactions, the purchaser and the vendor will execute a letter of intent. A letter of intent (which is sometimes called a memorandum of understanding) is a written agreement between two or more parties which is meant to confirm fundamental terms or indicate interest by a potent

FAQs

What role does the letter of intent play in an acquisition?

It confirms fundamental transaction terms and opens negotiations. It can be binding for specific protections (such as non-disclosure and no-shop) even if other sections are non-binding.

How do asset purchases and share purchases differ in liability and speed?

In a share purchase, the buyer acquires the corporation and its underlying assets and liabilities, generally making it faster and less complex. In an asset purchase, the buyer selects which assets and accompanying liabilities to take, leaving unassumed liabilities with the seller.

What is covered during due diligence in an acquisition?

Due diligence involves investigation and searches related to the target business, including legal, financial, and business due diligence. It continues throughout the transaction to manage risk and confirm the business condition.

Sep 16, 2026

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